People Before Profits

If you understand the importance of oil to modern capitalism, you will understand a great deal indeed.

Oil prices had been relatively stable for some time until the end of 2003 when oil prices were around $29 a barrel. Since then the average price trend has been steadily upward, briefly hitting $57 a barrel in early April. By my crude calculations, the trend line shows an average increase of 37 percent per year.

At that rate, the price per barrel doubles every two years. While the fluctuations around the average trend are due to conjunctural factors, such as the war in Iraq and a lack of refining capacity, the overall increase has other causes. The principal cause, the one that no one in the capitalist media wants to talk about, is Hubbert’s Peak — the coming decline in world oil production.

Hubbert’s Peak is the point at which half of all the available oil is used up and total supply starts to decline. (The peak is actually the peak of a bell-shaped curve representing oil production.) After that point supplies decline and prices climb. Worldwide, Hubbert’s Peak is expected to occur between 2006 and 2015. The peak can also be calculated for individual countries. The peak for U.S. oil fields in the lower 48 states occurred in 1970, and domestic oil production has been declining steadily ever since, in spite of advancing technologies and intense exploration.

In March of this year the oil industry analysts John S. Herod Inc. estimated the Hubbert’s Peak for the giant oil companies. By Herod’s calculations, all of the large oil companies will hit their peak in the next four years. The French oil giant Total S.A. is expected to peak first in 2007. ExxonMobil, ConocoPhillips, BP, Royal Dutch Shell, and Eni SpA (an Italian corporation) will all peak in 2008. ChevronTexaco, with the largest reserves, will peak in 2009.

As demand continues to climb and the major oil corporations and the world approaches Hubbert’s Peak, several things will happen. First, prices will climb steadily. This will have a direct impact on all the economies of the world. In the U.S., the cost of living will increase, consumer spending on homes, durable goods, and other items will decline, and unemployment will increase. This could result in a period of stagflation or, as some experts predict, a depression.

Second, profits will surge. While the rising price of oil will hurt the working people of the world, it will result in massive profits for the oil companies. The cost of production is not changed in the short run by the declining supplies. In the medium run, new investment in production, refining and transportation of oil will be required to get at the harder and harder to find remaining oil deposits.

Third, the corporations, unable to find enough new supplies to meet demand, will use some of their profits to buy up other corporations to increase their reserves. This is already starting. The New York Times reported that “giant oil companies are flush with cash because of record crude oil prices, but short of fresh opportunities to develop fields. That has led some companies to seek growth through acquisitions rather than through exploration.” The Times report focused on the $16.8 billion acquisition of Unocal by ChevronTexaco. More acquisitions are on the way as the giants acquire the smaller companies and even other oil giants.

Fourth, the U.S. will become even more dependent on oil produced in OPEC countries and U.S. capitalism will be even more likely to intervene for the sake of control of the oil supply (and oil profits), as it did in Iraq. The next most likely target is Venezuela, which has the largest known reserves outside of the Middle East and a government that refuses to be controlled by Washington.

The problem of global warming and our over-reliance on increasingly scare supplies of oil are linked. A starting point for dealing with both problems is to nationalize all oil companies in the U.S. and use the profits from oil production to convert to mass transit and renewable energy. In the process, we would dramatically reduce greenhouse gas emissions.

Nationalization would also permit a just transition for oil workers away from oil production to renewable energy as the industry is systematically reduced. The current path followed by our misleaders such as Bush will lead to super-accumulation of wealth for the capitalist politicians’ “base,” the rich and the super-rich. For the rest of us — it will lead to environmental catastrophe and economic ruin.